Platinum As Investment

There is one precious metal that is seemingly overlooked by investment specialists – platinum. Should platinum be in your investment portfolio?

December 2018 will be remembered in history as the worst Christmas since the Great Recession… or ‘ever’, according to MarketWatch. We heard market analysts talking about the bullish market and about the market volatility. Also, about secure investments in commodities. Namely, precious metals – and gold and silver in particular.

But there is one precious metal that was largely overlooked by investment specialists – platinum. So, should platinum be in your investment portfolio?

Investment case: platinum

Platinum as investment

Platinum and it’s uses

Platinum is a dense, malleable, ductile, highly unreactive, precious, silverish-white transition metal. Its name is derived from the Spanish term platino, meaning “little silver”.

Because of its chemical properties, platinum is used primarily as an industrial metal (about 40% of demand). Because of its high boiling point and conductivity and its resistance to water, air and many acids, platinum is used primarily to manufacture automotive catalytic converters, in the chemical and electrical industry and in petroleum refineries.

The valuable precious metal is also used for jewellery (between 31-38% of world’s demand of platinum).

Interesting facts about platinum

Meteorites and the moon contain a higher percentage of platinum than can be found on Earth

Typically 95% pure, platinum is one of the purest precious metals

All the platinum ever produced would only cover your ankles in one Olympic sized swimming pool. All the gold ever produced would fill three Olympic sized swimming pools

One gram of platinum can be stretched into a wire over 2,000 metres long – that’s over a mile

Pure platinum’s density is 21.45 grams per cubic centimetre, making it one of the densest elements

Price of Platinum

For a long time, platinum was the most expensive of the precious metals and was traded at prices of over 1,000 US dollars per troy ounce. The long-term average is for platinum to be about 1.2 times higher than gold. In 2008 at one stage, platinum was 2.5 times higher.

While, in theory, platinum should arguably be worth more than gold, this is not necessarily always the case.

The high price for platinum can be explained by its rarity (annually production of around 250 tons compared to 2,800 tons of gold), scarce deposits and the complex extraction methods required. One ounce of platinum with the standard purity of 95 percent is obtained from ten metric tons of ore and requires a refining process of five months.

In terms of its abundance on the planet, then, platinum should always be more valuable as it is much rarer. However the price of metals doesn’t work like that and while, in theory, platinum should arguably be worth more than gold, this is not necessarily always the case.

As we write this article, the price of platinum is at £623.18 ($796.50). The gold is, however, some $400 higher at £1,003.51 ($1,282.62) per ounce. Platinum is worth just 0.67 times the price of gold. This is the lowest platinum has been in the era of floating exchange rates.

Why Platinum value is ‘on the floor’?

As mentioned earlier, platinum’s main use is in catalytic converters (about 44% of annual demand comes from the vehicle industry). The Volkswagen emissions scandal of 2015 – when it was discovered that pollution emitted by diesel engines was considerably higher than manufacturers had indicated – has changed perceptions.

This created a real problem where there’s more than a year’s supply of metal stockpiled above ground

No matter that Western European diesel demand only accounts for about 15% of overall platinum use; or that platinum demand from the vehicle industry is only down 3% year on year (according to research by the International World Platinum Council). Perception is what counts.

The fact that South African mines keep digging despite the price of platinum dropped to a decade low also didn’t help the matter.

This created a real problem where there’s more than a year’s supply of metal stockpiled above ground, according to Metals Focus Ltd. And while the world produced 8 million ounces of the metal in 2017, it consumed only 7.7 million ounces.

It would be safe to assume that in a booming – or at least stable – market, platinum price will only pick up in response to a new source of demand. “The industry is going to shrink in size until there is a new source of demand,” said Natixis SA senior commodities analyst Bernard Dahdah.

So should you invest in platinum?

Five reasons to invest in platinum

Scarcity

Most of platinum supply comes from South Africa where, by now, a lot of mines are shut, thus adding to the scarcity. According to the International World Platinum Council (IWPC), global platinum supply was set to contract by 2% in 2018.

China’s appetite for platinum and platinum group metals has room to grow

The combination of tightening emissions standards (China 6 emissions standards) and continued auto production growth means that China’s appetite for Platinum Group Metals has significant room to grow. That is if China manages to survive the trade war with America.

Fuel cell electric vehicles to drive the demand

Palladium availability challenge

The properties of platinum and palladium are very similar. Both palladium and platinum are used in the automotive sector. And while platinum prices have dropped, palladium prices are at their all-time high. This presents a potential palladium availability challenge that would make manufacturers turn back to platinum.

Price performance in volatile markets

Precious metals tend to perform well in less than favorable economic conditions, and platinum is no exception. Along with gold and silver, platinum can make a good addition to the investment portfolio in times on financial volatility.

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